Boris Johnson has a Bank of England problem
After a landslide victory in the UK general election, Boris Johnson has many difficult choices ahead – not least on Brexit. One imminent personnel decision, however, will reveal a lot about whether Britain still wants to play in the big league globally.
Johnson’s government is about to pick a new governor for the Bank of England, as Mark Carney’s term expires at the end of January. Unfortunately the list of names in the frame isn’t especially impressive. The UK should really be trying to snag a top-class central banker if it’s serious about forging a bright new post-Brexit future.
Carney will leave a decent legacy. He got off to a shaky start after a faster-than-expected job recovery muddled his message on when interest rates would rise. But on the day after the 2016 Brexit referendum, he delivered a textbook lesson in central bank crisis management. Carney’s pledge that the BOE stood ready to provide ample liquidity to the banking system ensured that Britain only suffered a plunge in sterling, not a financial panic.
Since the referendum, he’s been under intense fire from Brexiter politicians, who accuse him of spreading unnecessary gloom and being politicised. But Carney’s stature – he’s an ex-governor of the Bank of Canada – made his reassurances to investors credible. Britain faces several risks, from the threat of departing the European Union without a trade deal to the challenge of keeping financiers in the City of London post-Brexit. It could do worse than recruiting another star.
Regrettably, none of the names floated recently – including in a Financial Times report this week – match this description. Minouche Shafik, director of the London School of Economics and a former deputy managing director at the International Monetary Fund, has the international profile. Yet her tenure as a BOE deputy governor has been unimpressive, and she failed to leave her mark on its rate-setting Monetary Policy Committee.
Kevin Warsh, a former senior official at the US Federal Reserve, is well-known in monetary policy circles. He has written a review of transparency at the BOE, so he has direct knowledge of the institution. Unfortunately, he made a number of wrong calls during the financial crisis. In 2008 he argued that inflation was a big risk despite all the economic weakness and financial turbulence. He opposed the continued use of quantitative easing, even though it was decisive in the US recovery.
Andrew Bailey, head of the UK Financial Conduct Authority and another former BOE deputy governor, has long been considered the “safe” choice for the job. But a string of possible regulatory oversights – most notably over Woodford Investment Management – has dented his reputation. There are doubts too over his international stature. He’s an acceptable option, but hardly an advertisement for “global” Britain.
Another choice would be to promote an internal MPC member. Sadly they all have drawbacks too. Ben Broadbent is the best monetary brain, but is unproven organizationally. Jon Cunliffe is a veteran of UK negotiations with Brussels, yet he’s not a trained economist and wouldn’t provide the right intellectual leadership. Andy Haldane, the BoE’s chief economist, is very creative. But his views on monetary policy have often been flippant, which might worry investors. Dave Ramsden, a former chief economic adviser to the Treasury, is maybe the best-rounded candidate, but he’s only been on the MPC for a couple of years so might not have the necessary experience.
Chancellor of the Exchequer Sajid Javid may want to expand his search. The trouble is that Brexit creates a recruitment paradox. While its complexities demand a world-class central banker, they make the job unappealing.
The debate over how the BOE operates has become brutally political, as Carney can attest. The future of Britain’s economy and financial system will hinge on a string of trade decisions made by Johnson, over which the new governor will have no influence. Little wonder Raghuram Rajan, ex-head of the Reserve Bank of India and one of the best possible candidates, said Brexit was a reason he didn’t apply.
Britain may therefore need to settle for an ordinary BOE chief, rather than a superstar. That would be the start of a new era of diminished expectations in London.
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Source: Thanks smh.com